Quebecor did not want Shaw Mobile’s “heavily subsidized” customers in deal to acquire Freedom Mobile

Quebecor Inc. did not want Shaw Mobile’s customers included as part of its $2.85-billion to acquire Shaw Communications Inc.’s wireless business because they did not fit the company’s business model, an executive for Quebecor’s Videotron Ltd. subsidiary told the Competition Tribunal.

Earlier this year, Rogers Communications Inc. and Shaw agreed to sell Shaw’s Freedom Mobile, Canada’s fourth-largest wireless carrier, in an attempt to win regulatory approval of their $26-billion proposed merger.

Despite an agreement to sell Freedom to Videotron, which would allow the Montreal-based telecom to expand beyond its home province of Quebec, the Competition Bureau is seeking to block the proposed merger of Canada’s two largest cable companies in its entirety. The competition watchdog argues that the deal will lessen competition and result in higher prices.

Lawyers for the Competition Bureau have argued that the merger would leave Freedom Mobile a weakened competitor because Rogers plans to acquire a number of Shaw’s wireless assets, including 450,000 Shaw Mobile customers in Western Canada. Those customers receive steeply discounted wireless services that are sold in bundles with cable and internet services.

Jean-François Lescadres, vice-president of finance for Videotron, told the Competition Tribunal on Friday that when Videotron did its due diligence, it discovered that Shaw was using the Shaw Mobile brand as a way of retaining their internet and cable customers “more than anything else.”

The low prices that Shaw Mobile customers were paying for their wireless services were “heavily subsidized” by high internet costs, Mr. Lescadres said.

For example, Shaw Mobile customers could get certain wireless plans for free, or for as low as $25 – but only on the condition that they subscribed to an internet plan offering 1.5-gig speed for $129 per month, Mr. Lescadres said. A similar internet package in Quebec would cost $60-70, he noted.

Rather than paying to acquire those customers, who generate low average revenue per user (a key telecom industry metric known as ARPU), Videotron planned to “fight” to win those customers with attractive prices after the merger, Mr. Lescadres said.

“At first Rogers was including those Shaw Mobile customers in the deal. It’s really us on the Videotron side that figured that it will be way better for us, and will help us, also, on the pricing of the deal, to have those customers excluded,” Mr. Lescardes said.

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